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Bhola,
I'll copy some previous posts on trend channels below.
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Cliff,
It's explained in the book "Trader Vic - Methods of a Wall Street
Master", by Victor Sperandeo. His method of drawing trend lines is
explained on page 71. He defines short term trends as days to weeks,
intermediate term trends as weeks to months, and long term trends as months
to years. To draw an up trend first select the time period to be
considered. Then draw a line from the lowest low in that period up and to
the highest minor low preceding the highest his so that the line does not
pass through prices in between the two lows. (Not passing through any data
and a low before the highest high are both important points). Then extend
the line to the right past the highest high point. It is possible that the
line will go through prices past the highest high. In fact, that's one
indication of a trend change.
For a down trend its similar, except the line is drawn form the
highest high in the period to a high before the lowest low.
I highly recommend Trader Vics book just to understand his trend line
strategy that he explains in chapter 7.
Jim
Guy,
I also prefer hand drawn channels using Trader Vic's trend line
drawing
methodology. That's all I use for intermediate and long term trends.
However, if you use that methodology for short term trends that haven't had
time for a couple of highs and lows, you will almost always get stopped out
during normal movement as the first highs and lows are made. To get around
this problem I use Raff Regression Channels for short term channels only
since
they tend to be more forgiving.
The problem is trying to tell where to set your channel start and end
point. For new Short Term Up Trend Channels (STUTCs), the start is easy.
Set
the start at the low just proceeding the down trend channel breakout and
don't
ever move it. After at least one new good low has been set and a following
high has been set that is higher than the high just before the new low, set
the right side of the channel at the new high and extend the channel to the
right. Anytime a new high is made, stretch the channel to the right to
include the new high. Do not stretch the channel anytime the close is not
a
new closing high.
Once the trend channel is drawn, trend channel trading is simple. For
up
trend channels, buy when the stock has just bounced off the bottom of the
channel. Set your target just below the top of the channel. Set your stop
just under the bottom of the channel. Vice versa for a down trend channel
and
a short position.
One change I'm in the process of trying applies to new STUTCs. I draw
the new channel as described above. I may have bought when a short or
intermediate term down trend was broken. If that was the case, I'd set the
stop just under the old low and not change it until I had enough data for
the
new STUTC. I will only have bought when there is an intermediate or long
term
up trend channel already in existence. I'll set my target based on that
intermediate or long term trend. After the new STUTC is established, I'll
move my stop to just under that STUTC, but will keep my target based on the
longer term trend channel. Whenever, the stock hits the top of the STUTC,
I
won't close the position, but will sell covered calls to protect it as I
did
with IOM today. I'll buy the calls back when the stock reacts back to the
middle of the STUTC. If the stock continues to rise, I'll let the stock be
called.
After 2 or 3 months, if I'm still in a stock and it has had some good
highs and lows that will confirm a Trader Vic type trend line, I'll switch
to
a channel constructed that way. Some earlier posts on my strategy that you
might have missed follow:
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Chris,
I have a couple of Telescan prosearches I use to identify new stocks
for
my database. I run those searches weekly and look at the Telescan charts.
If
you have Telescan and would like to have my prosearches, just yell. If I
like
the charts, I then download the historical data to my MetaStock database.
When I get the stock in my MetaStock database, I use a default template to
set
up a CandleVolume chart of the stock with a small volume window under it
and
three indicator windows over it. The indicators are RSquared, LinRegSlope,
and MFI. I then run the five MetaStock system tests in the compare mode,
to
find which one works best with that stock. If the mfi test does best, I
don't
change anything. If CMO, QStick or CCI does better, I change the MFI
indicator to the one that does best. If ROC does best, I change the
RSquared
and MFI indicators to ADXR and ROC. That way I can tell which test does
best
by just looking at the chart. About once a month I look at all the stocks
in
my database and prune those that I'm no longer interested in.
I update the stocks in my database daily using the Downloader. The
stocks in my database are in different subdirectories for LEAP Stocks,
Stocks, LEAP Watch, Stock Watch, and portfolio lists. I run my MetaStock
Exploration which is a normalized version of the system tests weekly. For
the
stocks identified by the Exploration, I look at the chart and run the
appropriate system test. If the stock looks like it may be a near term
buy,
I'll move it to the appropriate watch list. I look at all the charts in my
watch list daily. Once they move out of a buying range, I move them back
to
the appropriate stock or LEAP directory. Whenever, I have buying power in
one
of my portfolios, I make my selection from one of the watch lists.
That's a short summary of my investment strategy. Yell if you have
any
questions.
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Hope that helped. Yell if you have any specific questions.
Jim
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From: BHOLA N ANEJA <JEEV@xxxxxxxxxxxxxx>
To: Metastock User Group <metastock-list@xxxxxxxxxxxxx>
Subject: Short Term Down Trend Channel
Date: Friday, July 25, 1997 7:50 AM
Could someone teach me how to draw a STDTC! I would really appreciate it.
PS If you do not respond to Murrey, may be he will fade away.
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